How to Win a Bidding War In 2021, According to Redfin Agents
SEATTLE, Feb. 23, 2021 /PRNewswire/ -- (NASDAQ: RDFN) — Today's housing market is one of the most competitive in history, with 56% of Redfin home offers facing competition nationwide in January. To help buyers prepare to inevitably compete for a home, we asked Redfin agents to share the best unique strategies for winning bidding wars in 2021.
The tactics below go beyond basic bidding-war techniques like waiving contingencies, offering all cash and/or above the asking price and free rent back, though buyers should also consider those strategies, which are often highly effective.
1) Consider a condo over a single-family home
Buyers who want a better shot at winning a bidding war should consider purchasing condos, which have attracted less competition than single-family homes during the pandemic because they often feature shared spaces and amenities. In January, 58.7% of offers for single-family homes written by Redfin agents faced competition, compared with 54.8% for townhouses and 44.6% for condos. Condos have been selling for a record 17% discount to single-family homes, another potential draw for buyers.
"Single-family homes in Seattle are hot, hot, hot," said local Redfin real estate agent Sarah Rollinger. "Townhomes are picking up steam, but condos are still 110% a buyer's market. I have seen a lot of canceled condo listings, so we have quite a backlog of condo sellers on top of the current inventory."
2) If you can't waive contingencies, sweeten them for the seller
Shorten the contingency timeline: One of the best ways to make an offer more competitive is to waive contingencies, such as the inspection contingency and the appraisal contingency. Buyers who don't feel comfortable doing this can instead opt to expedite the contingency timeline, meaning they agree to wrap up their inspection or appraisal more quickly than normal.
Sign a low-appraisal addendum: If you can't waive the appraisal contingency, another option is to cover the difference if the appraisal comes in low. For example, if you offered $400,000 and the appraisal ends up at $375,000, you can agree to cut a check for $25,000 when the deal closes.
3) Be open to making offers sight-unseen
Speed is key in a seller's market as competitive as this one. If you're interested in a home but live far away or just haven't been able to tour it, you can still throw your hat in the ring. Video tours and 3D walkthroughs have made sight-unseen offers much more feasible during the pandemic. Almost two-thirds (63%) of people who bought a home last year made an offer on a property that they hadn't seen in person, the highest share since at least 2015 and up from 32% a year earlier, according to a survey Redfin commissioned in November and December.
"My client lost out on even seeing a house because the seller accepted an offer before starting showings," said Colorado Springs, CO Redfin agent Ashley Farrell. "The listing went active Tuesday and showings weren't scheduled to begin until Thursday, but the seller received five sight-unseen offers and was under contract by Wednesday afternoon. The winning bid was all cash, $45,000 over the $380,000 asking price, and waived the appraisal and inspection contingencies."
4) Choose an agent and lender who are willing to communicate constantly with the liting agent
In a fast-paced real estate market, constant communication is essential. Buyers should work with agents and lenders who are willing to keep in contact with one another and with the listing agent in order to gather intel about what the seller is looking for, and ensure that the seller knows the buyer is serious.
"When I'm dealing with a multiple-offer situation, a huge plus is when the buyer's lender contacts me to introduce themself and let me know that they're on top of everything," said Sylva Khayalian, a Redfin listing agent in Los Angeles. "Sometimes I get calls from lenders before I even reach out to them to confirm a buyer's pre-approval, and I love that because it reassures me that I'm not going to have any communication issues and makes the buyer's offer more competitive. It's also great when the lender is local because that means they know the ins and outs of the market."
5) Start low, bid high
A lot of successful buyers today win by making an offer that exceeds the asking price. This also means that a lot of buyers end up exceeding their budgets. To prevent this, San Diego Redfin agent Jim Johnston recommends searching only for homes that are $50,000 to $75,000 below what you can afford, so there's room to negotiate if necessary.
Once you've identified those properties and are ready to start bidding, research recent home sales in your area to determine how much the typical winning bidder is offering above the asking price, said Raleigh, NC Redfin agent Pam Lewis. Then offer more.
"If most winning bidders in your area are offering 5% more than the listing price, then offer 6%," Lewis said. "And make your offer amount an odd number."
6) Consider releasing your earnest money early
Earnest money is a deposit buyers put down to show sellers they're serious about purchasing a home. Typically, a buyer deposits this money into an escrow account when they go under contract on a home and it's applied to the purchase price at closing. In today's competitive market, some buyers are offering to release these funds to the seller early as a non-refundable deposit—typically within a few days of going under contract, according to Seattle Redfin agent Heather Stovall.
"This is an enticing offer for many sellers because it means they immediately receive and can keep the funds regardless of whether the transaction closes, and can put those funds toward the purchase of their next home if needed," Stovall said. "Of course, releasing earnest money early can be a risky proposition for buyers. If a buyer's financing falls through or they lose their job and can't complete the purchase, they don't get the earnest money back after it has been released."
7) Offer to pay some of the seller's costs
Homebuyers can make their offers more competitive by offering to pay for expenses that are typically covered at least partially by the seller. These costs can include transfer and recordation taxes, along with title insurance.
"On a scale of 1 to 10, the competitiveness of today's market is a 10," said Maryland Redfin agent Zachariah McBride. "I have only won by having my buyers help the seller net mostly all of their money by covering taxes and paying above the appraised amount in the event of a low appraisal."
8) Prepare to lose before you win
With more than half of offers facing competition these days, it's more likely than not that you'll get into a bidding war if you're in the market for a home. Go into the process mentally prepared to lose more than once.
"I have clients who have been trying to buy a four-bedroom single-family home in the $650,000 to $800,00 range since November. They started relatively conservatively, offering just over the asking price and maintaining some contingencies," said Alexandria, VA Redfin agent Matt Ferris. "Three months in, they'd submitted seven failed offers and came around to being very aggressive. They finally got an offer accepted on a home this month. The home they have under contract is very nice, but smaller than the first one they bid on, and they're paying $10,000 above what that first home closed for. They also had to bid on it sight-unseen before it came on the market and waive all contingencies. It's a lesson in making offers as strong as possible early in the process."
It's also wise to know when to walk away. It's OK to put your search on hold if you reach the point where you're not comfortable making the aggressive offers that are often necessary to win in today's market. You don't want to end up with buyer's remorse, after all.
9) Get creative
Some buyers and agents are going to great—and unusual—lengths to win bidding wars. Here are a couple of fun examples:
To read the full report, including tips for sellers, please visit: https://www.redfin.com/news/agent-bidding-war-tips-2021/.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email email@example.com. To view Redfin's press center, click here.
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